CEO Daily: Thursday, 27th July

Adobe announced yesterday that it is going to stop supporting Flash, a transformative technology that brought the Internet to life two decades ago by allowing motion graphics, interactive games and videos to be inserted into web pages; it then fell out of popularity in the mobile era. It would be just another story of a popular product made obsolete by the disruption of technology except for this fact: Flash didn’t die of natural causes. The late Steve Jobs killed it.

To understand how critical Flash was to a generation of media developers, you can read this personal paean by Fortune’s Stacy Jones. Flash’s fate was sealed by Jobs’ decision not to support the popular technology in the iPhone or the iPad. That was a business decision, forcing developers to build things specifically for his devices, rather than retrofitting stuff built for the open web. But the extraordinary move came in 2010 when he personally penned a 1,700 word attack on the Adobe product. I had been a business reporter for three decades by that point, and had spent countless hours reading business history. Yet I couldn’t think of another example of the CEO of a large company engaging so consciously and personally in an attack on the product of a business partner. I interviewed Adobe CEO Shantanu Narayen the day after the hit job, and you can see his shell-shocked response here.

Top News

• GOP Seeks LCD

A Senate vote on repealing much of Obamacare—with a two-year transition period—failed by a 45-55 vote. Six of the seven GOP senators who voted against the bill had voted for an almost identical one when they had Barack Obama’s veto to protect them from the electoral consequences. Health Secretary Tom Price told CNBC that “what we need to do in the Senate is figure out what the lowest common denominator is,” a statement that sounds reasonable enough until one remembers that the GOP has had seven years to think about that question. Reports suggest that support for such a minimalist approach, backed by House Speaker Paul Ryan, is gaining ground. With a three- Senate’s summer recess having been pushed back by three weeks, hopes for a breakthrough haven’t died yet.
Fortune

• Dollar Hits New Lows After Dovish Fed Statement

The dollar fell across the board after the Federal Reserve punted a decision on trimming its balance sheet. The Fed’s policy-making committee next meets on September 20, although Janet Yellen may drop hints about the pace of ‘quantitative tightening’ at the Fed’s annual symposium in Jackson Hole in August. Stubbornly low inflation (to which the Fed’s statement gave a passing nod) and rising political risk are the two forces pushing the greenback down. Forward markets now imply only a 40% probability of another rate hike this year, something that was seen as a near-certainty three months ago.
Fortune

• Facebook Surges as Ad Slowdown Fails to Materialize

Facebook’s shares rose nearly 4% in after-hours trading after the company posted a better-than-expected 71% rise in net profit and a 45% rise in revenue from a year earlier in the second quarter. The company warned again that growth could slow in the second half as it saturates its feeds with ads, but the market was less concerned than when it first heard that message three months ago. Facebook is needing more time than it expected to monetize the Messenger service, with its 1.2 billion active users. But CEO Mark Zuckerberg stressed that video would be a more important source of revenue than the chat tool in the future.
Fortune

• Foxconn’s Display of Affection

Foxconn, the Taiwanese electronics company best known as the biggest supplier for Apple’s iPhones, said it will build a $10 billion plant for LCD display panels in Kenosha, Wisconsin. The announcement is by far the most visible victory to date for President Trump’s campaign to revive U.S. manufacturing. It promises 3,000 new jobs initially, rising to 13,000 over time, and is only “the start of a series of investments by Foxconn in American manufacturing in the coming years,” according to the company. Governor Scott Walker said the state would award $3 billion in incentives to support the project.
Fortune

Around the Water Cooler

• Big Oil’s Diet Bores

Two of Europe’s hydrocarbon blue-bloods reported better-than-expected results for the second quarter, cementing expectations of similar improvements at Exxon, Chevron and elsewhere. Royal Dutch Shell’s profits more than tripled on the year, while Total’s rose 14% (albeit from a much higher base than Shell’s). Cash flow improved sharply due to aggressive cost-cutting and, especially in Shell’s case, solid refining margins. CEOs Patrick Pouyanné and Ben van Beurden vied to boast how much healthier they felt after shedding so much corporate fat and promised to lower their breakeven crude prices even further. Pouyanné even said Total could look for acquisitions (where’s the harm in a little dessert now and then, after all?). The implication is that their cherished dividends may soon be guaranteed even at a crude price of $50/barrel, which is just as well, given OPEC’s seeming inability to end the world oil glut.
Reuters

• ABI Hits the Spot

Brewing giant AB Inbev’s shares rose over 5% after its big-name global brands such as Budweiser, Corona and Stella Artois drove revenues up 4.4% on the year. That was despite declining sales in the U.S. and Brazil. The figures are a welcome vindication for the strategic shareholders who engineered the $104 billion merger with SAB Miller, and who have been under pressure to prove that they can grow businesses as well as just stripping out costs. But CEO Carlos Brito hasn’t forgotten that trick either: efficiencies from the SAB Miller merger allowed basic operating margins to expand by over 2.3 percentage points to 37.7%.
Reuters

• Cancer Drug Failure Blows a Hole in AstraZeneca

AstraZeneca shareholders got a reminder of what really creates and destroys value at a pharma company. After some wild swings in recent weeks over whether star CEO Pascal Soriot was heading to Teva, the company’s shares tumbled 16% after it said Imfinzi, its next-generation cancer drug, failed to do better than chemotherapy in tackling lung tumors. Imfinzi was supposed to generate $7 billion in annual sales by 2022. Without it, the case AZ made for staying independent when it rebuffed Pfizer looks more than a little hollow. The shares are now 23% below what Pfizer had offered in 2014.
Bloomberg

• Data Demand Explosion Plays to Samsung’s Strengths

Samsung stood out from a host of overseas companies reporting earnings Thursday morning. Operating profit rose to a record $12.68 billion, fractionally above what it had forecast earlier in the month and ahead of Apple. Demand for high-end chips from Internet-based enterprises such as Amazon and Facebook, along with the successful launch of the Galaxy S8 smartphone, were chiefly responsible. That performance has driven the company’s shares to all-time highs this year, despite the absence of vice-chairman Jay Y. Lee for the last six months due to his trial for bribery and fraud. Nobody (and we’re looking at you, Elliott) say “or because of.”
Bloomberg